2020 Outlook for Emerging Markets Equity Investing
While US-China trade issues still haven’t been resolved, there are reasons to be optimistic about the prospects for emerging markets in the coming year, according to Manraj Sekhon, chief investment officer, Franklin Templeton Emerging Markets Equity. He shares his outlook for 2020, and how technological innovation is leading to new investment opportunities in a number of countries.
Emerging markets are at a rare inflection point with multiple crosscurrents. A combination of the ultra-loose monetary policy hangover from the global financial crisis, a low global growth environment from weak manufacturing and industrial activity, the continued rise of the consumer, and the disruption and opportunities of the new economy have provided a heady mix.
While market sentiment in 2019 was weighed down by easing growth concerns, emerging market growth is forecast by the International Monetary Fund to accelerate in 2020 and remain more than double that of developed markets.1 Improving fiscal, economic and monetary policies and a renewed focus on structural reforms in many emerging markets has been gaining traction.
Supported by more conducive monetary policies in developed economies and easing inflationary pressures, central banks in emerging markets generally turned more dovish in 2019. We expect this trend to continue in 2020, as policymakers have greater flexibility in stimulating economic activity.
Although US-China trade tensions have de-escalated in the short term on rising expectations of a partial trade deal and plans for both countries to scale back tariffs, we expect the broader economic conflict to remain for some time. The impact from the trade conflict has not been limited to China.
While US imports from China over the last year declined US$35 billion to US$497 billion, China’s imports from the United States decreased by more—US$40 billion to US$125 billion.2 Therefore, we believe a comprehensive agreement remains in the best interests of both sides. The Trump administration will be acutely aware of this heading into an election year.